The Missing Piece in Liquidity Calculations  

Oleh:

Bartoletti, Stephen

Jenis: Article from Bulletin/Magazine
Dalam koleksi: Journal of Accountancy vol. 213 no. 4 (Apr. 2012), page 34-37.
Topik: Financial Reporting; Working Capital; Current Ratio; Auditors; CPAs; Liquidity

Ketersediaan

Perpustakaan Pusat (Semanggi) Nomor Panggil: JJ85.32 Non-tandon: 1 (dapat dipinjam: 0) Tandon: tidak ada

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A fundamental flaw in US GAAP and IFRS financial reporting standards distorts the calculation of working capital and the current ratio, resulting in a significant understatement in most companies' liquidity. This outcome is detrimental not only to the companies but also to the economy overall, because it reduces the amount of credit available to businesses. A particularly negative consequence occurs when the flaw results in the reporting of a negative level of working capital -- one of the stress alarms that auditors use to determine if they should report that a company is in danger of bankruptcy. CPAS and auditors have an advantage over lenders and security analysts because they have access to the necessary raw data -- the schedule of next year's depreciation -- needed to calculate CPFA and a correct current-period ratio. They should do so, because reporting a company to be illiquid or worse, near bankruptcy based on faulty ratios is as detrimental as failing to identity a truly illiquid firm.

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